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Zimbabwe's indigenisation policy confounds investors

Zimbabwe’s economic indigenisation programme has rendered the country a very uncertain place to do business for white nationals and foreign investors. Harangued by bellicose threats of closure one minute, and mollified with promises of investment protection the next by a government apparently playing good cop-bad cop with foreign-owned banks and mining conglomerates, it is no wonder that they should feel thoroughly confounded.

The controversial black economic empowerment legislation was passed by a majority Zanu PF parliament in 2007, placing statutory requirements on targeted businesses to cede at least 51 per cent of their equity to black Zimbabweans. The deadline for mines to comply with these regulations expired on 24 September, and the fledgling economy has not seen more unpredictable times.

Driven by President Robert Mugabe and his Zanu PF party, the indigenisation programme has faced its most trenchant opposition from Prime Minister Morgan Tsvangirai, who formed a coalition government with the demagogic Mugabe in February 2009 following disputed elections a year earlier. The MDC leader blames his power-sharing partners for the policy inconsistencies that have wrong-footed economic recovery.

‘Mugabe comes out and tells investors, ‘your investment is safe’, and then indigenisation minister Saviour Kasukuwere says, ‘I want to close this and that mine.’ This kind of policy conflict cannot inspire confidence,” Tsvangirai told supporters commemorating his party’s 12th anniversary in Harare last month. He was referring to Kasukuwere’s outlandish threats to shut down foreign banks and mines that failed to comply with the indigenisation regulations.

Only a few weeks earlier, Mugabe had reassured foreign investors saying: ‘Other possible investors are still waiting in the wings, some possibly frightened about Zimbabwe because of its reputation given by the media in the West. We say come, don’t be afraid. But come as friends and not as exploiters.’

But no sooner had the ailing 87 year-old leader given his nebulous reassurances than Kasukuwere emerged to strike fear at the heart of the country’s financial sector with threats to shut down Standard Chartered, Stanbic, and Barclays - the only three foreign banks operating in Zimbabwe. He also announced the imminent closure of more than 50 mines, including the platinum giant Zimplats which is on the verge of proceeding with a planned $460 million expansion project that would bring its total investment in Zimbabwe to close to $1 billion.

The government had in 2006 signed a ‘Release of Ground Agreement’ with Zimplats providing the company – 87 per cent owned by Implats of South Africa - security of tenure over mining claims required for the long-term expansion programme. However, it now sought to amend certain aspects of that agreement and also rejected Zimplats’ idea that firms could sell their shares to black Zimbabweans by listing them on the stock exchange.

In a policy twist that brought relief to Zimplats and other threatened miners, albeit doing little to clear the confusion, mines minister and the country’s mines licensing authority Obert Mpofu sought to calm restive investors by declaring that his ministry had no intention of cancelling mining licenses. It is believed Kasukuwere was leaned upon to accommodate Zimplats.

As the Economist magazine observed, the threats against the foreign mining companies seem reminiscent of a shakedown game: ‘the investors are terrorised with the imminent risk of closure, they are hit with various deadlines and ultimatums, and then they are allowed to negotiate a deal to continue in business.’

Despite these conciliatory remarks, investors still remain unsure as to whether the government could be trusted. The prevailing sentiment at the mining indaba was that this new tone could change any time it suited the government’s ends and that with the rules of engagement so undefined it was impossible to really know what could happen.

The government wants to set up a sovereign wealth fund which will hold shares in various mining businesses, according to Kasukuwere. But the crucial question is how cash-poor Zimbabwe will afford to pay for more than half of all foreign and white-owned equity across the economy. Kasukuwere is on record as having said that with respect to paying for mining equity, the mineral reserves in the Zimbabwean soil were sufficient payment, which suggested that the government seeks to take control of the mining sector without paying a cent for it.

According to Reuters, ‘investors and foreign companies are unsure if they will be compensated if they give up the stakes. Even if compensation is offered, many wonder how the government can afford it with foreign debt already at 115 percent of GDP’.

Chinese firms do not suffer such anxieties, however, as they were exempted from full compliance with the indigenisation regulations because they supported vital sectors of the economy. But Kasukuwere has made it clear that he will not exempt ‘companies from countries which have put our country under sanctions’. The US and the EU have since 2001 and 2002, respectively, maintained targeted sanctions on Zimbabwe in protest at the country’s human rights record.

In the banking sector, Kasukuwere is at war with Reserve Bank governor Gideon Gono, an open critic of the current indigenisation model. Responding to Kasukuwere’s two-week ultimatum to the three foreign-owned banks to submit their indigenisation plans to government, Gono warned the minister against ‘reckless’ and ‘excitable flexing of muscles’ which ‘could irreparably harm the nerve-centre of our recovering economy’.

RBZ Governor Gideon Gono (left) and Finance Minister Tendai Biti

But the abrasive Kasukuwere, who clearly enjoys Mugabe’s full support, insisted he was the authority on implementing the government’s indigenisation law and nonchalantly dismissed Gono’s intervention. Finance Minister Tendai Biti, a key Tsvangirai ally and favourite with the IMF and donor countries, has waded into the banks indigenisation saga to negotiate an agreed threshold with Kasukuwere and the affected banks. ‘One thing that we have made clear to the Minister of Indigenisation is that banks are different from mines. Mines sit on capital. Banks are middleman. They are conveyors of capital. A bank is as good as its deposit base so naturally a different approach has to be taken,’ he said.

The Bankers Association of Zimbabwe is opposed to the statutory indigenisation of Barclays, Stanbic and Standard Chartered banks arguing that it is not necessary since 85 per cent of the country’s banking sector is locally owned. Indeed, many critics of Mugabe’s indigenisation policy hail the indigenisation model that opened up the financial sector to new local investors over the past two decades as it focused on creating new capacity within the economy and bringing competition in the financial services sector.

Critics of the empowerment policy within and outside Zanu PF fear that ministerial discretion over the selection of empowerment partners for foreign firms will benefit Zanu PF’s dwindling patronage system. The party could easily give empowerment-related funds as well as access to indigenised equity only to its loyalists. Mugabe, faced with a deeply divided party and opposition to his plans to fight yet another election as the Zanu PF candidate early next year, is keen to dangle this new carrot to secure the support of party stalwarts.

Critics also say the policy is merely a top-down empowerment strategy that will only indigenise the elite and only saddle average citizens with the negative impact of its failure through declining productivity and job losses. The policy battles within Zanu PF as well as in the coalition government mean that there will be no quick end to the confusion for foreign investors as implementation of the indigenisation programme will remain a slow, grinding affair.

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